Banks must share business plans for govt funding

NEW DELHI: The finance ministry will seek business plans of public sector banks before it works out a roadmap for providing the next round of capital support to them.

In December 2010, the government approved a Rs 6,000-crore capitalisation support for 10 public sector banks where government holding is less than 58%.

The ministry has already received requests from banks on the amount of capital they require, but the North Block wants to do its due diligence before allocating the amount among claimants.

According to a finance ministry official, banks will have to provide details such as expansion plans, foray into other non-banking areas such as insurance, and set aside amount for supporting regional rural banks and financial inclusion.

"Assessment will be done on this basis, and, accordingly , we will work out the amount that should be given," said the finance ministry official, adding that they have already initiated the exercise.

"We have to sign a statement of intent (SoI) on annual goals. On other details like expansion plans, we will only be able to provide estimates," said a chairman of a north India-based bank.

Union Bank of India chairman MV Nair had said last month that they expect Rs 1,150-crore support by March 2011. "This will help us to increase our Tier-I capital to 8.37% from the current 7.9%," he had said. The government has a 55.43% stake in the bank. But the finance ministry official clarified that no decision has been taken so far. Banks such as the Oriental Bank Of Commerce, Andhra Bank and Dena Bank may get more as the government holding in them is close to 52%.

"These banks are not in a position to access capital markets. Infusion in Tier-I capital will help them to raise money through Tier-I ," he said.

The government aims to help these banks attain a minimum 8% Tier-I capital by March 31, 2011.

The capital infusion will enhance the state-run bank's capacity to meet the credit requirement of the fast growing Indian economy.

In the Union Budget 2010-11, the government has provided for recapitalisation of Rs 16,500 crore to help banks maintain a Tier-I capital adequacy ratio in excess of 8%.

The government so far has infused a total of Rs 8,911 in public sector banks, excluding this additional support. According to the government review, the capital requirements of state-owned banks over the next two years is around Rs 38,000 crore.